Abstract:

Guanghua Yu is Assistant Professor, Faculty of Law, University of Hong Kong; S.J.D., University of Toronto,
1996; LL.B., University of Toronto, 1993; LL.M., Osgoode Hall Law School, York University, 1988; B.A.,
Shanghai Maritime Institute, 1985. An early version of this article was written for a forthcoming book,
LAWS AFFECTING BUSINESS TRANSACTIONS IN THE PRC, to be published by Kluwer Law International.
This Article, however, has revised and expanded the earlier version. Abstract: From 1949 to 1978, China's economy was centrally directed
under a very rigid system of state planning. Under the planning system, security
devices were not widely used. The government drew specific plans for enterprises
and the Ministry of Finance used banks to allocate the funds to enterprises or
projects. The banks, however, did not have to screen projects and monitor the use
of funds after disbursements. They merely distributed the money to enterprises and
collected the profits. Recognizing the shortcomings of central planning based
almost exclusively on public ownership over the means of production, China
embarked on an economic reform program in 1978. In 1993, China boldly
declared that it would move towards a market oriented economy. Security devices
have played significant roles in China's reform towards a market oriented
economy. Within a period of twenty years, China has developed a sophisticated
understanding of the many security devices adopted in the West. Secured
transactions are now very popular. The central focus of this article is to examine
the various security devices under Chinese law and practice. These security
devices include the deposit, the lien, the dian, the mortgage, the pledge, and the
guarantee. The strengths and weaknesses of the legal provisions governing these
security devices are also discussed. As China does not fully guarantee the
convertibility of its currency into foreign currencies, a separate discussion
concerning the provision of security or guarantee to foreign entities is provided.